In Figure 2.2, panel (b) shows that during a period in the early 1990s, the rate of M1 growth was increasing rapidly, while the rate of M2 growth was decreasing. Briefly explain how this outcome was possible.

Figure 2.2

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30% $14,000 25 12,000 M2 M1. 10,000 M2 8,000 10 6,000 4,000 - M1 2,000 -10 1970 1970 1975 1980 (a) Levels of M1 and M2 1985 1990 1995 2000 2005 2010 2015 1980 1975 1985 1990 1995 2000 2005 2010 2015 (b) Growth rates of M1 and M2 Money supply, M1 and M2 (billions of dollars) Growth rate of the money supply 15